India’s central bank raised its growth forecast for fiscal 2026-27 to 7.1% while warning that inflation pressures are building, highlighting the trade-off behind its latest rate increase.
The Reserve Bank of India (RBI) Monetary Policy Committee approved a 25-basis-point increase at its Oct. 5-7 meeting, taking the repo rate to 5.50%. It also shifted its stance to calibrated tightening. RBI Governor Sanjay Malhotra said in minutes published Oct. 21, “Inflationary pressures are, however, building up.” The forecast covers the fiscal year running from April 2026 through March 2027 and is up from 6.7% in August.
The Ministry of Statistics and Programme Implementation reported real gross domestic product (GDP) grew 7.8% year over year in April-June 2026. Price figures published after the policy meeting showed provisional consumer inflation of 5.54% in September, up from a final 4.83% in August. Food inflation rose to 7.74% from 5.97%, the ministry reported.
The RBI projects inflation at 6.0% in October-December, the upper end of India’s 2%-6% tolerance range around its 4% target. In its policy resolution, the RBI warned that weak monsoon rains, El Niño and high energy and commodity prices could raise inflation and hurt rural demand.
According to Malhotra, the share of CPI basket commodities with inflation exceeding 4% rose from 20% in March 2026 to 37% in August. All six committee members supported the rate increase. Nagesh Kumar and Ram Singh favored retaining a neutral policy stance. Kumar disputed the view that inflation had spread broadly. Singh warned that expectations of substantial further increases could weaken demand for vehicles and real estate and weigh on private investment.
The committee’s next meeting is scheduled for Dec. 2-4. The ministry calendar lists the October 2026 consumer price index release for Nov. 12, moving publication to the next working day if that date is a holiday.
